Asset Protection
Many people worry about how best to protect their hard-earned assets, and how to pass them on to the next generation. In fact, it is the single most important concern of many of our clients.
To come up with the best possible solution, you have to consider many different financial, legal and tax matters. Your assets can be affected by various threats and you need expert advice to be sure that you have done everything possible to protect your assets and make sure your worst fears do not come true. In order to get the best advice you need to fully understand and give a clear picture of your aims and your personal and financial circumstances. Of course not everyone has the time, knowledge or experience to deal with these various issues. That’s when expert advice is essential. Helping clients protect their family assets is a major part of our work and so we are very familiar with the issues you need to address.
You probably know all about the ups and downs of stock markets and share prices and understand that these are certain to be a feature of investments for the foreseeable future. However, the ever-changing value of investments is only one of the threats to your assets. In fact, you need to deal with all of the following if you do not want the protection of your family’s assets to be left to luck.
Taxation
Inheritance Tax is a tax charged on the value of:
- the estate left by someone who has died; and
- any money or other valuable items a person transfers to another in the seven years before their death.
The first £285,000 of value is free from Inheritance Tax, and any value over that amount is taxed at the flat rate of 40% if the transfer occurs on death and 20% if it is a lifetime transfer. You could be very surprised when you work out the value of your assets and discover just how much tax may need to be paid from your estate.
A very real problem in reducing the liability to tax is that you often need all of your assets to make sure you go on living comfortably throughout your lifetime. However, some avenues are open to you and it is often possible to greatly reduce, or even remove, the potential tax liability, especially if you are married or in a registered civil partnership.
For many people the best approach is to make a Will and to take out some life assurance which is then written under trust. If you are a member of a pension scheme you should also make sure that you tell the scheme’s trustees who they should pay any death benefits to. This will make sure that any death benefits paid do not become part of your estate and so cannot be taxed as such.
Long Term Care Costs
With more and more people living longer, you should be prepared for the possibility that you or a member of your family may need residential or nursing care in later years. Every year more than 40,000 people in Britain have to sell their homes to pay the fees for their long-term care. The cost of private care, sometimes amounting to over £30,000 a year, can quickly eat into your assets. As the government does not give financial help until your assets fall below £20,000, the cost of funding long-term care can have a more devastating effect on your assets than any form of tax. Fortunately however, with careful planning it is possible to protect your assets from care costs and so make sure your dependents are not deprived of their rightful inheritance.
Claims on Your Estate
Making sure the family business passes on to the right people can be one of the most difficult procedures within any family. You have to consider who should take over (succeed to) the business and when, and also the claims that other members of the family will have on your estate and how these claims could be funded. If you do not deal with this area properly, the person the family business passes on to could have to sell part of it to fund claims made by other members of the family.
Clients sometimes do not want certain members of their family to have any claim on their estates. Although this is unusual, there are steps you can take to make sure most of your estate is protected from unwanted claims. Also, you may want to place assets in trust for your children until they reach a certain age or the trustees decide that the time is right for them to receive the assets.
Marriage Breakdown
We all know someone whose marriage has broken down and have seen the problems that can arise when dividing the couple’s assets. There are often questions about what makes up the common ‘pool’ of assets and what share each person is entitled to. It is increasingly common to deal with these issues in advance. You can do this either through a pre-nuptial agreement or by using trusts. It is then often possible to make sure that family assets do not disappear when a marriage breaks down. This may be especially true in second marriages where there are children from a previous marriage. Since the advent of the Civil Partnership Act 2004m same-sex couples can now enter into a registered partnership and obtain rights similar to married couples. Pre-registration contracts and Trusts can be used for protection of assets in a similar way as for marriages.
Business Risk
When a family business runs into problems there is enough to think about without worrying about the effect this may have on the assets that are held outside the business.
The laws of bankruptcy always govern these situations, but if you take measures early enough, and when you do not anticipate any problem, you could protect your assets from creditors if the business ever runs into problems.
For more information on how to protect assets from any of the above threats please contact Frank Fletcher, Tom Monteith or Pamela Niven.
For more information you should look at the Frequently Asked Questions and Links section of this website.
